EHedger Afternoon Grain Commentary 3-2-2012
Mar 02, 2012
Soybeans were again the upside leader finishing higher for the 10th trading day in a row. May soybean finished 10 ½ cents higher at $13.33, May corn 1 cent higher at $6.55, and May wheat 10 ½ cents higher at $6.74 ½.
The USDA announced more private sales of soybeans this morning with 120,000 MTs of old crop and 165,000 MTs of new crop (both to unknown destinations). This combined with somewhat "bullish" Informa estimates this morning may have been enough for the market to hold support. Looking at a chart of May soybeans, it looks like we settled directly on the 61.8% retracement level which is a major technical target for exit orders (see chart). This may keep some technical sell pressure on the market, especially after trading higher for the past 10 days in a row.
Chart: May Soybeans
Informa is pegging soybean production at 47.5 MMTs for Argentina and 68.0 MMTs for Brazil. These numbers are overall 4.5 MMTs lower than the Feb USDA estimate. As I said yesterday, there are other analysts calling for even further cuts than this. If they write down the crop too much, they may be set up for disappointment if the actual USDA estimates come in better than expectations. From what we have been seeing, rains have been timely and favorable for many of these areas to close out their growing season and such a significant drop in production seems unlikely.
May corn is still holding resistance below the trendline which started back in November (see chart). December corn is having a very similar pattern keeping it resisted.
Chart: May Corn
Chart: December Corn
The Spring Federal crop insurance prices are set at $5.68 for corn and $12.55 for soybeans. Now that these prices are set we want to make sure we have adequate downside coverage between your crop insurance, cash sales, and futures/options positions. The month of March will be extremely important with the Supply and Demand report on the 9th, but more importantly the Planting Intentions report which is on the 30th.
November soybeans have gained quite a bit back on corn (relatively speaking). Even with this move we believe corn acres will still be in that high range near 94 million acres. We see soybeans gaining about a million acres bringing our estimate to 76 million. We expect the market to add back in up to 9 million acres in the US and 6 million acres in Canada that didn’t get planted last year due to weather issues. Cotton and spring wheat prices are likely to get "outbid" on additional acres by corn and beans due to the price advantages in the market this year. The USDA is forecasting a 1.623 billion bushel carryout for corn and 209 million for soybeans. These estimates are AFTER increasing demand sharply from last year. We certainly think demand may increase, but it will be AFTER the prices drop. In our opinion we are trading at very good prices compared to where we could be next fall if we get a normal growing season. Corn getting back to $4.50 and beans under $10 isn’t so hard to believe with the potential production of this year. Also, the ethanol report again showed an increase in stocks and a decrease in production which isn’t a great trend outlook from a demand perspective. We also have to remember that this is all at the same time that the specs are loaded up with net long positions.
For a free trial of the AMMO software and the EHedger research, please click on the signup link below.
Trading commodity futures and options involves substantial risk of loss and may not be suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge and financial resources. The market information contained in this message has been obtained from sources believed to be reliable, but is not guaranteed as to its accuracy or completeness. Market information may not be consistent with current or future market positions of EHedger LLC, its affiliates, officers, directors, employees or agents.